Eurozone hits high note but recovery proving lop-sided

Markit’s Flash Eurozone Composite Purchasing Managers’ Index (PMI), which gauges business activity across thousands of companies large and small, rose to 52.1 in December from 51.7 last month.

It was the second-highest reading since mid-2011. The index has been above the 50 mark that denotes growth for all the second half.

However, survey compiler Markit warned that while the increase in growth was reassuring, the country-by-country breakdown of the data revealed a lopsided recovery, with France floundering and Germany steaming ahead.

“The rebound in the eurozone composite PMI in December makes for encouraging reading and may serve to sooth concerns about the sustainability of the recovery,” said Martin van Vliet, senior economist at ING.

“But we should not get too carried away either – the still-low level of the overall index is a firm reminder that this recovery is still very fragile and sluggish.”

The division between the eurozone’s two biggest economies was marked.

The French composite PMI fell to a seven-month low of 47.0 and signalled a steady contraction in activity, while the same measure in Germany showed a solid expansion to 55.2.

Markit said the data suggested the eurozone economy, which escaped from its longest-ever recession earlier this year, would grow around 0.2 per cent this quarter

New orders rose for the fifth month, suggesting the recovery should continue into 2014.

German government bonds pared an early rise yesterday after the data.

Markit’s Eurozone Manufacturing PMI rose to 52.7 in December from November’s 51.6. That was its best showing in 31 months and smashed median expectations for 51.9.

A gauge measuring manufacturing output soared to 54.8 from 53.1, a level not seen in more than two and a half years.

As new orders for manufactured goods grew, factories were able to build up a backlog of work at the fastest pace since April 2011.

“This is very much a manufacturing-led recovery. It’s reflective of companies, especially in Germany, being more competitive and taking advantage of the upturn in global trade,” said Markit’s Mr Williamson.

The PMI for the services sector, which makes up the bulk of the eurozone’s economy, dipped to 51.0 from 51.2, confounding expectations for a rise to 51.5.

Services firms were forced to cut prices again last month, as they have done for the last two years, to drum up business.